Wheat From India Seen Shunned as State-Set Price Deters

April 3 (Bloomberg) -- India, the world’s second-biggest
producer of wheat, may fail to boost exports from state
stockpiles to make room for a near-record harvest after the
government set a price higher than other global shippers.

Wheat from state inventories is 15 percent more expensive
than U.S. supplies on a free-on-board basis and at least 24
percent costlier than Russian and Ukrainian grain, according to
Tejinder Narang, an adviser with Emmsons International Ltd., a
New Delhi-based trader. The government will need to lower prices
to boost exports, he said.

Futures slumped to the lowest level since June in Chicago
on April 1 on signs that expanding supplies will outpace demand
amid concern that global growth will falter. Falling prices may
hamper India’s plan to increase exports amid forecasts for a
near-record harvest, while further cooling global food prices,
which fell for a fifth month in February.

“If prices remain low in the international market India
will be required to lower its prices as the country in any case
needs to liquidate its stocks,” said Ramesh Chand, director of
the New Delhi-based National Centre for Agricultural Economics
and Policy Research. “Global prices are declining and because
of that it will be difficult to achieve the export target.”

Shipments in the year that began on April 1 may be less
than the 10 million metric tons estimated in January because of
falling global prices, Chand said.

Transportation Cost

India’s cabinet on March 7 approved exports of 5 million
tons of wheat by private traders from state stockpiles at a
minimum price of 14,800 rupees ($271.6) a ton. Traders will need
to buy the grain from the 2011-2012 harvest stored in warehouses
in Punjab state and will need to bear the cost of transportation
to the ports, according to Food Minister K.V. Thomas.

Wheat at Indian ports may cost about $322 a ton, compared
with $250 a ton to $260 a ton for supplies from Russia and
Ukraine for delivery in July and August, Emmsons’ Narang said.

“The government will need to review the prices and the
entire export policy if they want liquidation of stocks,”
Narang said by phone. “There is no parity for this kind of
price in the international market.”

Bear Market

Wheat entered a bear market in January as prospects for
crops improved and speculation increased that last year’s price
gain would prompt farmers to plant more. The contract for May
delivery rose 1.3 percent to $6.795 a bushel in Chicago at 4:58
p.m. in Mumbai. Futures tumbled to $6.5975 on April 1, the
lowest for a most-active contract since June 20. Prices have
fallen 28 percent from the last year’s closing peak of $9.4325 a
bushel on July 20.

The global wheat harvest may climb 4.3 percent to 690
million tons this year, the United Nations’ Food & Agriculture
Organization said last month in a report, as European farmers
expanded acreage while yields rebounded in Russia.

India’s wheat production may total 92.3 million tons in the
year ending June, near the record 94.9 million tons a year
earlier, according to the farm ministry. State stockpiles
expanded 27 percent to 27.1 million tons at the start of last
month. The government plans to boost purchases from farmers to
44 million tons in the marketing year that began April 1 from
38.1 million a year earlier, the food ministry said Feb. 19.

“The new crop arrival and a slowdown in exports are
pushing down local prices,” said Kishore Narne, head of
commodity and currency at Motilal Oswal Commodity Broker Pvt.
“The government will probably cut prices to bolster exports.”

The contract for April delivery on the National Commodity &
Derivatives Exchange Ltd. fell as much as 0.6 percent to 1,380
rupees per 100 kilograms and was last at 1,392 rupees in Mumbai.

Exports from state reserves by private traders are in
addition to 4.5 million tons already approved for shipment by
government-run companies since July. Total sales were 4.03
million tons between April 1, 2012 and Feb. 22, according to the
food ministry.